Difference Between Budget and Forecast
If you are busy strategizing next moves that the firm can do, you must be participating in formalizing the plans also. You are aware about what the terms “budget” and “forecast” mean and how they have to steer the firm in the direction you want. But what about us. The laymen who have very little understanding of corporates. How do we comprehend what is the difference between budget and forecast? While some of us may try to search the Internet, it may not be a solution for everyone. So, how do we comprehend the difference between budget and forecast? We are trying to alleviate the fears in anyone, and we will talk about the variation in their meaning. In this article, we will take you through the difference between forecasting and budgeting.
Definition of Budget
We can begin with the first word and comprehend the definition of budget. We are quite familiar with this term. So, what do we mean by this term? Budget is an expectation that a corporation is willing to attain. The firm defines the cycle. As an example, the central government will present a economic strategy for the fiscal. It is an expectation laid down by the organisation and deals with the expected trades and the costs and also talk about the cash flow status of the firm.
The budget will also allow us to calculate if there is any disparity in the real value and the planned value. Usually, a firm will expect a positive difference; that is, the real value is higher than the budgeted one. The senior administration will then use the variance and then decide on the upcoming course of the corporation. They may make changes as they feel.
Definition of Forecast
We have given details of one term. Let us now talk about the definition of forecast. We are also aware of this term. A forecast is a process by which we use earlier data and provide an assessment of the potential outcome. Apart from business, the forecast also has utility in more fields. The main one is the weather. Very often we hear that rainfall or snowfall has been forecasted.
Based on past data and satellite pictures, the weather can be predicted. In any company, mainly the sales and cost data are forecasted. Based on these, the budget is created. Estimating the forecast can be both for a short term or in the long run. The forecast is also of definite time-gaps but mainly of shorter tenure; ideally a month or a quarter. Again, we generally do not find any variation with a forecast.
Budget and Forecast Comparison Table
|What it means||It is fiscal planning undertaken by senior administration for a pre-defined time||It is the assessment of any future outcome by taking into consideration the current and earlier data|
|What is it||It is how to explain the corporate plan||An expectation of future event or tendency|
|Is there any target||Yes||No (Usually)|
|Frequency of updating||Usually every year||Usually short term like a month, two months or a quarter|
Conclusion of the Main Difference Between Budget vs Forecast
We have now dealt in detail about what is the difference in the meaning of budget vs forecast. The budget deals with the blueprint for the next fiscal. Forecasting is for a shorter cycle and deals with the estimating of the impending outcome by considering the earlier data and current data that are available. Moreover, the budget allows to check for any change in the real data to the expected data and enables the senior employees to make needed adjustments in the plan.
This is helpful for the company as it can make changes in their plan and steer the company towards the expected goals. In the end, this is helpful for the firm. The forecast can be applied in other fields like weather and allow the officials to prepare beforehand if there are any extremes in the weather. We see that the estimates will enable us to strategise and prevent unnecessary loss of assets. This is the same case for industry. Projecting transactions and cost can help in the rational use of resources.